Yours truly

This is our Blog on Personal Finance. We will attempt to be analytical as well as educative. We will tell you what we like and what we don't. We will tell you what we do with our money and what we tell you is what we will follow for us. Tell us what you like to see.

Executive Summary –The government had proposed some changes in EPF to ensure that people do not withdraw the funds meant for post retirement. The changes include increase in retirement age, disallowance of 100% withdrawal of PF before retirement, restriction on employer contribution withdrawal before retirement and one EPF account for a person irrespective of the employer. Due to widespread protests from different corners, some of the rules related to withdrawal and interest payment have been amended.

The Employee Provident Fund is a means to save money for retirement. It is like a social security account. In February 2016, some changes related to withdrawal of EPF funds were made by the government especially related to withdrawal of funds. There was a lot of discontent brewing everywhere in the country. Labour unions were against it. There were protests by workers. The government therefore decided to update the EPF provisions.

EPFO had stopped payment of interest to inoperative accounts from April 2011. Inoperative accounts are those where there has been no contribution for the last 3 years. In March 2016, it has decided to provide interest on inoperative accounts. This will benefit more than 9 crore account holders. Interest on deposits in such accounts will be credited from 1st April, 2016.

It was ruled that 60% of the EPF’s incremental corpus would be taxable from fiscal year 2017 unless the amount was invested in an annuity product that would provide regular pension. This has been reversed and now withdrawal from EPF is fully exempt from tax

There was a provision proposed that prescribed a maximum limit on the amount of employer contribution to Rs. 1,50,000. The government has planned to withdraw this provision. An employer can contribute how much ever amount as long as the monthly contribution does not exceed 12% of the employee's salary

There were loud protests and pressure from trade unions against the update that restricted complete withdrawal from PF account before the retirement age of 58 years. This rule has been rolled back owing to severe pressure.

EPF Provision Proposed

Update to the EPF Provision

EPFO had stopped payment of interest to inoperative accounts from April 2011. Inoperative accounts are those where there has been no contribution for the last 3 years. In March 2016, it has decided to provide interest on inoperative accounts. This will benefit more than 9 crore account holders. Interest on deposits in such accounts will be credited from 1st April, 2016.

People were happy with this update and this continues forward in the same manner.

It was ruled that 60% of the EPF’s incremental corpus would be taxable from fiscal year 2017 unless the amount was invested in an annuity product that would provide regular pension.

This has been reversed and now withdrawal from EPF is fully exempt from tax.

There was a provision proposed that prescribed a maximum limit on the amount of employer contribution to Rs. 1,50,000.

The government has planned to withdraw this provision. An employer can contribute how much ever amount as long as the monthly contribution does not exceed 12% of the employee's salary.

A rule was proposed that restricted complete withdrawal from PF account before the retirement age of 58 years.

This rule has been rolled back owing to protests by trade unions and severe pressure.

An important point to note amidst all these changes is that the government tried to bring theses changes to ensure that people have some sort of financial security during their old age. It was a way of forced saving else the funds get withdrawn for various reasons. It was also a way to sustain EPF and the interest payments. But since it was not a "popular' step, the provisions were withdrawn.NPS is another product for retirement savings which is often compared with EPF. NPS is market linked and over a long-term, the returns usually would be better. Tax benefit on investment in NPS can go up to Rs 2 lakhs. The amount of NPS corpus withdrawn and invested in annuity products will not be taxed. The remaining amount will be taxable.

It is helpful to know about the other features of EPF -

Interest is given on employee contribution and employer contribution in EPF.

The employer contribution is exempt from tax. The employee’s contribution is taxable but it is eligible for deduction under section 80C of Income tax Act.

You can check your EPF balance in different ways. You will get a statement through your employer. You can use the e-passbook facility to check the details.

Executive Summary – There have been some updates to the taxation on EPF withdrawal rules. Tax is deducted at source for withdrawal of EPF in certain conditions. There are ways to avoid the tax like not withdrawing it prematurely or submitting forms 15G or 15H if applicable.

Many employees use the Employee Provident Fund (EPF) as a too to accumulate money. There have been some changes to the EPF withdrawal rules which you can check out here. There are different taxation rules on different provident funds. Here is a brief overview on that -

Type of PF

Details

Recognized PF

Employer's contribution is exempt from tax up to 12% of salary.Employee Contribution is eligible for Tax deduction u/s 80SInterest credited is exempt from tax up to 9.5%Maturity amount received at the end of service period is exempt from tax under certain conditions which are detailed below.

Unrecognized PF

Employer's contribution is exempt from tax.Employee Contribution is NOT eligible for Tax deduction u/s 80SInterest credited is exempt from tax.Maturity amount received at the end of service period is exempt from tax subject to certain conditions.

Statutory PF

Employer's contribution is exempt from tax.Employee Contribution is eligible for Tax deduction u/s 80SInterest credited is exempt from tax.Maturity amount received at the end of service period is exempt from tax.

PPF

​Employer contribution is not thereA person's contribution is eligible for Tax deductionInterest credited is exempt from tax.Maturity amount received at the end of service period is exempt from tax.

There are some changes to Tax Deducted at Source (TDS) applicable on EPF. Let us look at the major changes -

Here is a flowchart explaining the TDS rules on withdrawal -

TDS is applicable on EPF in conditions such as withdrawal of amount>= Rs. 30,000 and within 5 years. It can be avoided by not withdrawing prematurely or submitting forms 15G or 15H if applicable.

The main change is that earlier you were responsible for paying tax if applicable on EPF. But now it is deducted at source. You can avoid TDS on EPF by not withdrawing the amount prematurely. If you have to withdraw then you should fill the 15G or 15H form as applicable.

Executive Summary – There have been some changes in the EPF withdrawal rules. These changes have been done to ensure that people do not withdraw the funds meant for post retirement. The changes include increase in retirement age, disallowance of 100% withdrawal of PF before retirement, restriction on employer contribution withdrawal before retirement and one EPF account for a person irrespective of the employer.

​The Employee Provident Fund is a good tool to save money. It is like a retirement saving fund. In February 2016, some changes related to withdrawal of EPF funds were made.Here is an overview of the same ​1) Retirement Age is increased –The minimum age of retirement at which you could withdraw the EPF was 55 years. But now the minimum age has been increased to 58 years. So even if you prefer to retire earlier, you will not be able to withdraw your EPF.

2) It is not possible to withdraw 100% amount of before retirement – When the retirement age was 55 years, one could withdraw 90% of the total amount when one reached the age of 54. Now a person has to wait till he/she reaches the age of 57. But even at the age of 57, one can withdraw the total amount of his contribution along with interest earned on it.

3) Employer Contribution to EPF cannot be withdrawn before one becomes 58 years old -Earlier a person could withdraw the entire EPF amount (employee contribution + employer contribution+ total interest accrued) if he is unemployed for 2 months or more. But now this rule has been changed and he can only withdraw his contribution and interest accrued on it. This rule will not be applicable if you are a woman who is about to get married or who becomes pregnant.

4) The EPF account stays the same –Earlier when an EPF account was opened, it was related to the current employer, employee, their contribution and interest accrued. When the employment terminated, the said account was closed. But as you are are not allowed to withdraw the money fully before retirement, the same account continues for future employment. The UAN has to be quoted to the new employer and the same EPF account can be continued.

Happy retirement with benefit of new EPF

The new EPF withdrawal rules related to increasing retirement age and restrictions on amount that can be withdrawn are done to enforce a person to save money

These rules are primarily aimed at blocking frequent withdrawals as EPF is considered a tool for building a retirement fund. Earlier there were many issues which are sorted because of these rules. For example, when a person changes his/her job, he/she could withdraw all the amount as there was no check whether the person is employed or not. Moreover there is lesser dependence on the employer for EPF. For example, the UAN can be quoted in the new job. Employer attestation for transfer or withdrawal is not required. In one way, it forces people to save for retirement. But some people might not want their money blocked. They might want to use it for more lucrative investment opportunities. There are some open ended issues like inoperative accounts and what will happen to PF amounts in multiple accounts that cannot be transferred to one EPF account. The employer contribution is low in case of workers with low wages. Blocking this amount will not help in retirement savings. There is a rule that states accounts idle for 3 years or more will not earn interest. There is no point in restricting people from withdrawing their amount from idle accounts. We will have to wait and watch how the EPFO handles these issues.